Should I Use a Credit Card or a Debit Card?

This is a typical question many of us get while at the register. If you’re not paying cash, and you’re not going through the antiquated ritual of writing a check, then you have likely decided to pay with a credit card or a debit card.

We each have a preference. Whether or not that’s based on habit, or based on a thorough, analytical assessment, is an interesting question. I suppose it’s the former for many people, who simply do what they are accustomed to doing. Frankly, once we get into the habit of doing something, it’s often a matter of putting forth the effort to make a change. Before we do that, we have to have awareness of a need to change, and the motivation to find out the different courses of action in the first place.

Honestly, in this case of credit vs. debit, I’ve simply gone with habit. This isn’t typical for me in terms of personal finance, as I do appreciate the opportunity to learn different – and better – ways of doing things. I’ll tell you later what I usually use 🙂

Before that, let’s take a moment to consider some differences between the two:

OPM vs. Your Money

Credit card: you’re really borrowing from a financial institution, and paying back later when you pay the credit card bill. In the interim, you can take advantage of float, keeping your money for a while before paying the amount due.

Debit card: you’re paying with your own funds right away, so there is no interest paid.

Risks from Unauthorized Misuse

Credit card: if someone takes your card or uses your #, you could be liable for charges. However, there are limitations of up to $50 and you don’t necessarily have to find out and report immediately.

Debit card: your liability can be up to $50, but that can be the case when reported within 2 days. Beyond this time frame, liability for unauthorized purchases with your card may be higher (note: for both credit and debit liabilities, be sure to check for official liabilities – these are just general guidelines)

Risks from Cardholder Misuse (i.e. having little or no discipline)

Credit card: your limit is basically your line of credit. Not paying bills or paying late can negatively impact your credit history, which can be a big problem

Debit card: your limit is your account balance. Maxing out your account balance can cause other checks to bounce, costing you money and causing hassles. But, irresponsibility might not impact your credit history like it would with a credit card.

These are just some of the major differences, and there are many others between credit and debit cards that can be considered. For example, a credit card might offer you some additional protection in terms of rental car or travel insurance.

What have I done? I mentioned above that I would share, and for me it’s been credit cards. As I’ve posted before, credit cards and discipline go together. Since I have the latter, I feel like I can use the former.

That’s what it comes down to for some of us: self-discipline. One might ask what are the advantages using a credit card, and I think that if folks feel like they have discipline and can understand the value of debt-free living, then credit cards can a be a great financial tool to use for a variety of reasons I’ve discussed before elsewhere. Otherwise, maybe debit cards work well. Also, if people just want to keep it simple and have everything flow out of one account, debit cards might achieve that more directly. Moreover, if your debit card is attached to an online checking account, you can easily monitor the status of your account in real-time from your computer or mobile phone.

Of course, a case could be made for doing both – using a credit card and a debit card, depending on the situation. I suppose there is no perfect or “correct” method, just a matter of what fits your situation best. The key is doing just that: taking a little bit of time to think about what will work best for you. This way, we maximize value and convenience for ourselves.

My Questions for You

Which do you prefer: credit or debit? Or, do you use both?

Why do you handle credit vs. debit decisions the way you do?

Do you have any other advantages/disadvantages of each to share, from personal experience?

Comments

The biggest problem I have with debit cards is that your bank account is directly linked to it. If you have an account in a small local bank, and your debit card is compromised, how much help the bank might give you will depend upon the bank. Smaller banks may try to place the blame on you and skirt from reimbursing you.

In case of a credit card, all the 4 card providers are multi-billion dollar companies. Your risk is minimal.

Good point on getting blamed, which really could happen in many other cases too. It’s a separate point that we should be aware of, that it’s no guarantee that we will always be treated fairly in all financial situations, even if truly not our fault.

We use both and, honestly. it just depends on the situation. I’ll generally default to using my credit card simply to get points. That has come full circle for us as we climbed out of debt, but now that we’re disciplined in our spending we’ll usually use the credit card.

Thanks for this informative post. I’ve been debating this in my head for a little while. For the most part, I just use credit cards for the purchase protection. All of my credit cards have fraud protection with zero liability. My debit card is great when traveling, because I can just go to an ATM for local currency at the best conversion rate.

I prefer credit cards because they seem to have the best cash back programs, and because I get the float in my interest checking account. Good balanced post, but I think credit cards are the best for me.

I’ve been using my debit card for the most part because I was trying to pay down my credit card debt, and had a hard time reigning in my spending with it in my wallet so I would leave it locked away in a filing cabinet. That being said, i am more worried that my debit card will be stolen. I had a credit card hacked before with all sorts of false charges and visa reversed them right away, not sure if it would be that easy with a debit card.

For many years I’ve used one of two credit cards for nearly every purchase: Discover or a Capital One Mastercard. Both provide cash back bonuses (which I like better than points because they are more flexible to me), although the Discover card usually has higher rewards. I pay the card balances off every month, and then use the bonus cash in various ways.

However, I have been using my Ally debit card when there is an Ally Perks offer that matches my spending habits. It didn’t take much time for me to figure out that the Ally Perks — which are cash back bonuses deposited into my checking account — are usually better than the reward levels offered by Discover or Capital One, and offset any lost interest.

For example, there is an Ally Perk going on through 6/16 to earn $2 back from a $10 Corner Bakery purchase. When I buy lunch in the Loop, it’s easy to spend $10 at Corner Bakery by ordering a food item and a drink. So if I have the opportunity to go out to lunch, then I’ll visit Corner Bakery, pay with my debit card, and collect $2 in my account within a day or two. That’s a 20% bonus on a purchase I would have normally made. Not bad!

Wealth-Building Financial Lessons

Disclaimer

We are well meaning folks that are not investment professionals or financial advisors. Please feel free to have fun here, and take this information in the spirit of entertainment, as it is not financial or legal advice, For that, seek an appropriate professional. Your actual financial decisions are your own responsibility. Thank you.